Visa Plans $17 Billion Public Offer

Tuesday

Feb 26, 2008 at 4:44 AM

Undaunted by recent turbulence in the financial markets, Visa Inc., the nation’s biggest credit card network, said Monday that it would forge ahead with what would be the largest initial public stock offering in United States history.

Undaunted by recent turbulence in the financial markets, Visa Inc., the nation’s biggest credit card network, said Monday that it would forge ahead with what would be the largest initial public stock offering in United States history.

Visa plans to sell as much as $17.1 billion of stock in late March, following in the footsteps of its smaller rival, MasterCard, which went public in May 2006.

Visa and MasterCard are prospering as Americans increasingly flex plastic, rather than use cash, to pay for just about everything. The companies have not been hurt by the credit squeeze, because they do not actually make credit card loans; they merely process transactions for banks that do.

If all goes as planned, Visa’s offering would generate a windfall for thousands of its so-called member banks, which own the company. The largest gains would go to many of the nation’s biggest banks, which have been stung by losses stemming from mortgage-linked investments.

“Visa will be able to tell its story, even in an uncertain market, because its story is a good one,” said David Robertson, publisher of The Nilson Report, a payment industry newsletter. “If investors think MasterCard is a good story, Visa looks like the same thing on a bigger scale.”

Visa plans to sell 406 million Class A shares for $37 to $42 a share, with just over half going to the public and the rest to Visa’s member banks.

The first $3 billion will be placed into a special account to cover outstanding antitrust and unfair-pricing claims brought by merchants. Visa will use some of the new money to streamline its operations, expand in fast-growing emerging markets and invest in new technology like systems that enable people to make card payments via cellphone. But the bulk of the capital will end up in the banks’ coffers, from repurchasing stock from them.

Visa’s member banks can use the extra cash.

If Visa’s shares are valued at a midpoint price of $39.50, JPMorgan Chase, the company’s largest shareholder, would receive an estimated $1.1 billion for its stake. Bank of America would get about $545 million; National City would get about $380 million; and Citigroup, U.S. Bancorp and Wells Fargo can each expect around $240 million or more.

“The credit crunch is pretty cyclical; the prospects for Visa are very strong long-term,” said Marc Abbey, the managing partner of First Annapolis, a consulting firm that works with many banks and payments companies. “I am sure it is convenient for them to have extraordinary gains at the same time they have extraordinary losses.”

Since going public nearly two years ago, MasterCard shares have soared 408 percent, closing at $198.45 on Monday. It now has a market value of $26 billion.

MasterCard’s successful I.P.O. prompted Visa to move forward with its own plans to go public. Since October 2006, Visa has reorganized its sprawling management structure, bringing together all of its global operations with the exception of those in Europe.

It has also hired Joseph W. Saunders, the former head of the Providian Financial Corporation, as its new chairman and chief executive, giving him a pay package worth $11.1 million in cash for 2007. Upon completion of the I.P.O., he is expected to receive an additional $11.5 million in stock and options, according to Equilar, a compensation research firm.

Visa transactions accounted for roughly 66 percent of all credit and debit card purchases in the United States in 2006, compared with about 26 percent for MasterCard, according to The Nilson Report data.

Growth in card transactions, the foundation of the companies’ businesses, has historically held up well, even when the economy and consumer spending slows.

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